Citing unspecified national security concerns, the government has rejected another high-profile foreign acquisition: the MTS–Allstream deal, announced earlier this year. The deal, was subject to government approval, the Globe and Mail reports.

After spending 136 days reviewing the $520 million deal, Ottawa has rejected Accelero Capital Holdings’ bid — owned by the Egyptian billionaire Naguib Sawiris, the original backer of Wind Mobile — to acquire a division of Manitoba Telecom Services Inc. According to a statement issued by Industry Minister James Moore, the decision followed a review of the deal under the “national security provisions of the Investment Canada Act”.

“The Government of Canada has concluded its review of Accelero Capital Holdings’ proposed acquisition of the Allstream division of Manitoba Telecom Services Inc. (MTS) under the national security provisions of the Investment Canada Act. The result of this review is that the transaction will not proceed, the statement signed by Industry Minister James Moore reads.

“MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada.”

Both parties involved in the deal, Pierre Blouin, MTS Allstream chief executive officer, and Naguib Sawiris, the owner of Accelero Capital Holdings, were surprised by Ottawa’s decision, which came out of the blue. During the review period, both parties were cooled by the government, which said their filing was in order, and every sign pointed toward approval. But as Moore’s statement shows, Ottawa says the foreign takeover raises national security concerns.

“MTS Allstream is extremely surprised and disappointed by this decision. MTS Allstream and Accelero have responded openly and constructively to Industry Canada’s requests for information in the 136 days since the transaction was announced, and Accelero has proposed far-reaching, comprehensive and binding undertakings to the Canadian government, including a commitment to invest $300 million over three years to pursue Allstream’s capital plans. The government has nevertheless now made the determination to reject the transaction due to unspecified national security concerns, and has rejected an offer from MTS and Accelero to take whatever actions are necessary to address the government’s concerns.”

“Throughout this process, we were comforted by Industry Canada that our filings were in order, our submissions complete and constructive, and our proposed binding undertakings serious and substantive so that the transaction would meet the ‘net benefit’ test,” said Mr. Sawiris in a statement.

“We are disappointed by the Government of Canada’s unfounded and unexpected decision.”

This isn’t the first time Ottawa has raised national security concerns — when Sawiris’ name has been involved — not so long ago, it was Wind Mobile’s VimpelCom takeover, as the wireless carrier used core telecom gear manufactured by Huawei, a company “blacklisted” in the US and other certain countries, such as Australia.

The government’s move, however, could create confusion among international investors about how open Canada is to foreign capital.

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